Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Edelweiss Financial Services (NSE:EDELWEISS). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Edelweiss Financial Services’s Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Edelweiss Financial Services has managed to grow EPS by 31% per year over three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Edelweiss Financial Services’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. Edelweiss Financial Services maintained stable EBIT margins over the last year, all while growing revenue 22% to ₹62b. That’s progress.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Edelweiss Financial Services’s forecast profits?
Are Edelweiss Financial Services Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So as you can imagine, the fact that Edelweiss Financial Services insiders own a significant number of shares certainly appeals to me. In fact, they own 40% of the shares, making insiders a very influential shareholder group. I’m always comforted by solid insider ownership like this, as it implies that those running the business are genuinely motivated to create shareholder value. And their holding is extremely valuable at the current share price, totalling ₹53b. That means they have plenty of their own capital riding on the performance of the business!
Does Edelweiss Financial Services Deserve A Spot On Your Watchlist?
You can’t deny that Edelweiss Financial Services has grown its earnings per share at a very impressive rate. That’s attractive. I think that EPS growth is something to boast of, and it doesn’t surprise me that insiders are holding on to a considerable chunk of shares. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Now, you could try to make up your mind on Edelweiss Financial Services by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.
Although Edelweiss Financial Services certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you’re looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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